National Taxation Bureau of Taipei, Ministry of Finance(NTBT) indicated that, if an employee, regardless of the overtime fact, receiving a fixed monthly overtime payment with the nature of a subsidy from the employer, the tax withholder shall combine such income with the employee's payroll to withhold the tax, and submit the withholding tax statements to the jurisdictional tax collection authority prior to the end of January of the following year.
NTBT pointed out that, the June 12th, 1980 MOF Taxation interpretation No. 34657 issued by Ministry of Finance stipulates that, for employees receiving overtime payment on extended working hours beyond the normal working hours due to operational needs, if the monthly total extra working hours has not exceeded the extended working hours upper bound(which currently is 46 hours) as stipulated under the Paragraph 2, Article 32 of Labor Standards Act, the overtime payment income are eligible for tax exemption and no income tax withholding shall be made in respect of such income in accordance with Subparagraph 2, Type 3, Paragraph 1, Article 14 of Income Tax Act. However, if the employees is paid with a fixed overtime payment regardless of whether the overtime fact truly exist or how much the extended working hours are, the income shall be categorized as subsidy under the same provision, and such income shall be combined with the employee's payroll for tax withholding rather than be eligible for tax exemption.
NTBT explained that, for example, Mr. Alpha, as an employee of Company A, was given an agreed monthly salary of $80,000 with 8 daily working hours in 2016. In addition, Company A estimated and gave Mr. Alpha additional $22,000 monthly tax-exempt overtime payment However, Company A only withheld 5% withholding tax from Mr. Alpha's $80,000 monthly salary and declared it as Mr. Alpha’s taxable salary income. After tax inspection, NTBT found that Mr. Alpha, regardless of the overtime facts, consistently received $22,000 monthly overtime payment from Company A. Thus, in accordance with the above-mentioned interpretation, the said fixed payment, as a deemed wage, should be consolidated with the payroll for tax calculation, rather than be categorized as tax-exempt income. NTBT finally determined that Company A, the tax withholder, failed to withhold tax in accordance with the stipulated regulations. Aside from being instructed to pay the tax amount which should be withheld but was not withheld or has short withheld and to submit supplemental tax-withholding certificates within a given time limit, Company A was also subject to a fine of no more than one fold of the amount of the tax amount that should be withheld but was not withheld or was short withheld.
NTBT reminded that, in compliance with the amendments made to the Labor Standards Act, taxpayers, who have any question regarding whether the overtime payment should be merged into the payroll calculation, are welcome to dial the toll-free service line 0800-000-321 or directly contact their jurisdictional tax collection authorities, and the authorities will be dedicated to all services.
(Contact: Ms. Chen, Section Head of 3rd Examination Division; Tel: 23113711, ext. 1760)